Sprint’s Future Up in the Air as Second Suitor Emerges

The US market for cellular service has been poised for change since AT&T’s aborted merger with T-Mobile in late 2011. This week, the latest attempt to remake this market emerged with two companies, Softbank and Dish Networks, now seeking to take over Sprint, the smallest of the four biggest players.

Arguments against a combined AT&T and T-Mobile essentially boiled down to fears that control of the US market for cellular service would fall from four companies to just three, and that such a market would limit consumer choice and, over time, raise prices. But the market as it now stands really has three tiers, with Verizon Wireless and AT&T controlling huge pieces of the market, T-Mobile and Sprint occupying a second smaller tier, and then a host of tiny local companies making up the rest.

Sprint’s suitors seek a different path. Rather than remove a player from the “big three” cellular providers, they would instead shore up the smallest of those companies. Softbank in October offered $20 billion in cash to control 70 percent of Sprint. And this week, satellite TV/Internet provider Dish Networks offered $25.5 billion to buy Sprint outright. Sprint is now considering both offers, although the Softbank agreement was originally expected to be finalized by July.

Softbank is a telecommunications giant in Japan, so its majority purchase of Sprint could perhaps be modeled after T-Mobile, which is owned by German-based Deutsche Telekom AG. (It’s worth pointing out that Deutsche Telekom has been trying to shed the underperforming US-based T-Mobile for years.)

The Dish deal came as a surprise, and not only to Softbank. Dish says it offers the better choice for both Sprint and its customers because it is based in the United States, already offers US-based spectrum and distribution, and can provide customers with a single bill for multiple services. (This is a benefit to customers of both Verizon Wireless and Verizon FIOS, which offers fiber-based Internet, phone, and TV services.)

Sprint currently has about 55 million subscribers and $35 billion in annual revenues, but its stock price has been mired in the $5 range for months. It also owns about 50 percent of Clearwire, which controls a wide swath of spectrum that will be key to future wireless data growth.

Softbank has already indicated that it will fight the Dish deal. One possibility is simply raising its offer, and allowing Sprint to continue as an independent company.